The main aim of the World Economy and Finance Research Programme
is to advance knowledge of the inter-relationships between financial markets and economic growth and stability.
Twenty six research groups in top universities throughout the United Kingdom are carrying out this work.
The Programme is fully funded by the independent Economics and Social Research Council (ESRC) and runs until 31 January 2010.

World Economy and Finance newsletter

"WELCOME to the fifth e-newsletter from the Economic and Social Research Council`s World Economy and Finance Programme. This newsletter sketches some key developments. I hope you find it useful and informative.

More information about the Programme - information on all the projects, publications, discussion papers, conferences, and other events - can be found on our website.

If you have received this newsletter in error or do not wish to receive further issues, then please reply to the email with the word `unsubscribe` in the subject heading."

Prof John Driffill, Programme Director

Honours and Distinctions

One of the projects that make up the World Economy and Finance Research Programme is Managing Macroeconomic Risks in Low-Income Countries: Institutions and Policies led by Professor Paul Collier, Dr Christopher Adam, and Professor David Vines, of Oxford University. Paul Collier`s recent best-seller
The Bottom Billion draws on his many years of intensive research on Africa, and includes findings from this project. We congratulate Paul on his award of a CBE in the Queen`s Birthday Honours in June 2008 for services to Scholarship and Development.

Extra Time

The ESRC has kindly agreed to give the World Economy and Finance Research Programme extra time. We now carry on until 31st January 2010. The extra eleven months will give us valuable time to publicise more results to the widest range of audiences. We will post details of all our planned activities on the web site and in future newsletters.

Project Profile

Global Economic Slowdown

The credit crunch and global economic slowdown continues to dominate the economic news. Some are calling events in the United States the worst recession since the 1930s. Many commentators focus on failures of regulation of financial markets. Some, like Larry Summers, call on Central Banks, among others, to take more vigorous action even if it means relaxing price-stability goals. Others, like Willem Buiter, seek to stiffen the Central Banks` resolve. The behaviour of financial markets in this as in many previous crises raises questions about how rationally they behave, and whether they are as socially efficient as claimed.

In order to answer some of the basic questions about how people behave in financial markets, two projects in the World Economy and Finance Programme are exploring whether there is herd behaviour in financial markets. Dr Antonio Guarino and Professor Steffen Huck of University College London investigate Financial Contagion: An Experimental Analysis. Professor Hamid Sabourian of Cambridge University and Dr Daniel Sgroi of Warwick University investigate Herding in Financial Markets. Herding happens when people have different pieces of imprecise information, and each one rationally makes inferences from what he or she sees other people doing about the information that those other people might hold. Sometimes, in these conditions, individually rational behaviour leads to everyone following a bad signal and going down completely the wrong track. Markets can get things badly wrong. Both projects are doing experiments, some of them using real financial market experts working in the City of London, to explore behaviour. Experimental economics is an increasingly important instrument in the research toolkit. It helps to spring economics from the trap of having only historical data, inherently limited in quantity, and allows controlled experiments to be carried out. The project pages (links above) give more details, access to the latest publications, and contact details for the researchers.